BaoshanIron&SteelCo.,Ltd.

[Pages:22]Baoshan Iron & Steel Co., Ltd.

600019

2014 1st Quarter Report

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Table of Contents

?1 Important Notice

3

?2 Company Profile

3

?3 Significant Events

6

?4 Appendix

10

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?1 Important Notice 1.1 The Board of Directors and the Board of Supervisors of Baoshan Iron & Steel Co., Ltd. (hereinafter "the Company"), along with their directors, supervisors and senior executives, hereby guarantee that the Quarter Report is free from false statement, misleading information or grave material omission, and assume relevant separate and joint responsibilities in regard to the truth, the accuracy and the integrity of the contents of the Report.

1.2 Name of directors absent from the meeting of the Board of Directors for reviewing the

Quarter Report and their reasons

Name of the absent Post of the absent Explanation of the

Name of the

director

director

absent director

mandatary

Wang Li

Director

Work

Zhu Junsheng

Wong Pik Kuen Helen Independent Director

Work

Yuh-chang Hwang

1.3 The 1st quarter financial statements have not been audited.

1.4 He Wenbo, Chairman of the Company, Zhu Kebing, chief accountant, and Wang Juan, Director of the Finance Department in charge of the accounting affairs, attest to the truthfulness and completeness of the financial statements in this Report.

?2 Company Profile 2.1 Highlights of the Company

A profit of RMB 2.12 billion has been realized in the first quarter, representing a year-on-year growth of 47.2%. The Company has maintained the best performance among domestic peers. The first information platform for banking chattel mortgage ? "Shanghai Information Platform for Banking Chattel Mortgage" has been officially launched; in the future, with steel pledge as the breakthrough, various businesses of chattel mortgage will be gradually covered. The sales of the exclusively leading products and cold-rolled automotive sheets have presented a year-on-year growth of 9.6% and 19.5%, among which the sales of the advanced high strength steel of automotive sheets has shown a year-on-year growth of 220%. The Company has improved the customer service capability, kept the title of "Global Annual Supplier" of General Motors, and won the title of excellent supplier of GAC Fiat for the first time. The Company has completed the first RMB settlement business for iron ore trade with Australia Rio Tinto Group, with transaction amount of over RMB 100 million. Centering on the target of leading in steel technology, the Company has accelerated the step of innovation; the project of Development and Industrialization of High-grade Non-oriented Silicon Steel Manufacturing Technology has won the first prize of Shanghai Scientific and Technological Progress Award, and the Company has ranked among the top 10 Chinese enterprises with 1436 valid patents.

2.2 Major accounting data and financial indicators

Unit: RMB

Major accounting data

At the end of the reporting period

At the end of the previous

year

Increase/decrease from the previous

year (%)

Total assets (RMB million)

232,539

226,668

2.59

Net assets attributable to shareholders of listed company (RMB million)

111,963

110,512

1.31

Major accounting data

From the beginning of the year to the end of the reporting

period

From the beginning of the previous year to the end of the

previous

Increase/decrease from the previous

year (%)

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reporting

period

Net cash flow from operating activities (RMB million)

356

1,886

-81.12

From the

Major financial indicators

From the beginning of the year to the end of the reporting

period

beginning of the previous year to the end of the

previous reporting

Increase/decrease from the previous

year (%)

period

Operating revenues

46,748

46,355

0.85

Net profit attributable to shareholders

1,510

1,628

-7.23

of the listed Company (RMB million)

Net profit attributable to shareholders

of the listed Company less non-recurring gains and losses (RMB

1,499

1,606

-6.66

million)

Weighted average return-on-equity

1.36

1.46 Down by 0.1 ppts

(%)

Basic earnings per share (RMB)

0.09

0.10

-3.99

Diluted earnings per share (RMB)

0.09

0.10

-3.99

Deducting non-recurring gains and losses:

Unit: RMB million

Amount from the beginning of

Item

the year to the end of the

reporting period

Profits and losses arising from disposal of non-current

-64.5

assets

Returns on investment arising from disposal of

2.8

available-for-sale financial assets

Other net non-operating incomes and expenditures other

76.6

than the above items

Effect of income taxes

-3.7

Effect of minority interest

-0.001

Total

11.2

2.3 Principal business by segments

Segment

Operating revenues

Steel manufacturing

31,380

Processing and distribution

43,459

Information technology

754

E-commerce

2,307

Chemical industry

2,587

Finance

155

Offset between segments

-33,779

Total

46,863

Operating costs 28,377

42,425

515 2,299 2,342

70 -33,745 42,284

Gross margin

YoY change in gross margin

10%

Up by 1.0 ppts

2% Up by 0.1 ppts

32% Up by 10.0 ppts

0%

N/A

9% Down by 2.3 ppts

55% Down by 1.9 ppts

-

-

10% Up by 0.7 ppts

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2.4 Total number of shareholders at the end of the reporting period and top 10 holders of

shares not subject to conditional sales

Unit: share

Total number of shareholders

482,213

Top 10 shareholders

Name

Sharehold Shareholdin

er g proportion Total shares

nature

(%)

Shares subject to conditional

sales

Shares pledged or

frozen

Baosteel Group Corporation

State-own ed

79.71

13,128,825, 267

0 None

China Merchants Bank Co.,

Ltd. ? Everbright

Premedical advantage

Other

0.33 55,099,948

0 None

allocation shares securities

investment funds

Huaxin Trust Co., Ltd.

Other

0.30 49,051,100

0 None

CSOP Asset Management

Limited ? CSOP Source

Other

0.22 36,700,193

0 None

A50ETF

Morgan Stanley Investment

Management Co., Ltd. ? Morgan Stanley China A

Other

0.17 28,440,196

0 None

Share Fund

China Everbright Bank Co.,

Ltd. ? Everbright Pramerica Quantified Core Securities

Other

0.17 27,941,916

0 None

Investment Fund

China Foreign Economy

and Trade Trust Co., Ltd. ?

foreign trade trust ?

Other

0.16 27,001,145

0 None

Chongyang Hedge No.2

collective money trust plan

China Life Insurance Co.,

Ltd. ? dividend - individual dividend ? 005L ? FH002

Other

0.16 25,675,561

0 None

Hu

Fidelity Investments

Management (HK) Ltd. ?

Other

0.15 23,885,583

0 None

customer funds

Bank of China Limited ?

Harvest Hushen 300 trading and open index

Other

0.14 23,589,142

0 None

securities investment funds

Top 10 holders of shares not subject to conditional sales

Number of shares not

Full name

subject to conditional sales at the end of the

Type of shares

reporting period

Baosteel Group Corporation

13,128,825,267

RMB ordinary share

China Merchants Bank Co ., Ltd.

? Everbright Premedical advantage allocation shares

55,099,948

RMB ordinary share

securities investment funds

Huaxin Trust Co., Ltd.

49,051,100

RMB ordinary share

CSOP Asset Management Limited ? CSOP Source A50ETF

Morgan Stanley Investment

36,700,193 28,440,196

RMB ordinary share RMB ordinary share

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Management Co., Ltd. ? Morgan

Stanley China A Share Fund

China Everbright Bank Co., Ltd.

? Everbright Pramerica Quantified Core Securities

27,941,916

RMB ordinary share

Investment Fund

China Foreign Economy and

Trade Trust Co., Ltd. ? foreign trade trust ? Chongyang Hedge

27,001,145

RMB ordinary share

No.2 collective money trust plan

China Life Insurance Co., Ltd. ?

dividend - individual dividend ?

25,675,561

RMB ordinary share

005L ? FH002 Hu

Fidelity Investments

Management (HK) Ltd. ?

23,885,583

RMB ordinary share

customer funds

Bank of China Limited ? Harvest

Hushen 300 trading and open index securities investment

23,589,142

RMB ordinary share

funds

The fund manager of China Merchants Bank Co., Ltd. ?

Everbright Premedical advantage allocation shares

securities investment funds and China Everbright Bank

Remarks on affiliation, alliance or collusion among the aforementioned shareholders

Co., Ltd. ? Everbright Pramerica Quantified Core Securities Investment Fund is Everbright Primerica Fund Management Co., Ltd. The Company is not aware of any connected relationship among other shareholders

mentioned above or any parties acting in concert

specified in Measures for the Administration of

Acquisitions by Listed Companies.

?3 Significant Events 3.1 Sharp changes in major accounting statements and financial indicators and reasons Applicable Not applicable

In the first quarter of 2014, though iron and steel enterprises entered the traditional peak season, due to weak macro economy in China, the overcapacity in steel market further aggravated and steel inventories stayed high. At the end of the first quarter, the year-on-year decrease rate in international steel CRU index and domestic steel CSPI index respectively reached 6.0% and 11.0%. According to the statistical data of China Iron & Steel Association, in the first two months, the accumulated losses of 88 iron and steel enterprises amounted to RMB 2.85 billion, and the loss was as high as RMB 4.06 billion if Baosteel Ltd. was excluded.

In face of the negative factors in the steel market, the Company has continuously deepened marketing and enhanced customer service and technological innovation, optimized production and marketing mode, advanced systematic flexible manufacturing and resource guarantee capacity, stabilized sales price, led the confidence of the market, and ensured the good completion of operational goal in the first quarter. During the reporting period, the Company produced 5.515 million tons of iron,5.646 million tons of steel and 5.536 million tons of steel products, and realized a total consolidated profit of RMB 2.12 billion.

Sharp changes in major accounting statements and the reasons are as follows:

Compared with the first quarter in 2013:

Financial expenses had a year-on-year increase of RMB 360 million, representing a growth rate of 786.1%, mainly because the 0.9% depreciation of RMB central parity rate in the first quarter led to exchange losses of RMB 280 million; the 0.3% appreciation of RMB central parity rate in the same period last year led to exchange gains of RMB 60 million

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contributing the year-on-year growth of financial expenses of RMB 340 million.

Assets impairment losses had a year-on-year decrease of RMB 190 million, representing a decline rate of 298.7%, mainly because the provision for decline in value of inventories was reversed by RMB 100 million in the first quarter, while the provision for decline in value of inventories of RMB 40 million was made additionally at the same period last year.

Net cash flow arising from operating activities decreased by RMB 1.53 billion on a year-on-year basis, representing a decline of 81.1%. In the first quarter of 2014, the Company made a net profit of RMB 1.59 billion, depreciation and amortization of fixed assets of RMB 2.61 billion, other non-operational losses of RMB 280 million and cash from operating activities of RMB 4.47 billion. The occupation of inventory funds rose and cash flow decreased by RMB 1.4 billion; receivables from operating activities rose and cash flow decreased by RMB 4.06 billion; payables from operating activities rose and cash flow increased by RMB 1.35 billion, realizing RMB 360 million of net cash inflow arising from operating activities, RMB 1.53 billion less than that at the same period last year. Without regard to the impact of Finance Co., the net cash flow arising from operating activities was RMB 560 million, RMB 2.95 billion less than that at the same period last year. The year-on-year decrease is caused by the following reasons:

1 The year-on-year decrease of RMB 130 million in net profit and the decrease of flow;

2 The year-on-year increase of RMB 130 million in depreciation and amortization and the increase of flow;

3 The year-on-year increase of RMB 360 million in financial expense and the increase of flow;

4 The year-on-year decrease of RMB 190 million in provision for impairment loss, investment losses and other items and the decrease of flow;

5 Inventories at the end of the first quarter was RMB 1.40 billion more than that at the beginning of the year, while the inventory increase was RMB 3.07 billion for the same period last year. As a result, the year-on-year inventory flow increased by RMB 1.67 billion.

6 Cash flow from receivables at the end of the first quarter increased by RMB 3.63 billion, while the increase was RMB 1.09 billion for the same period last year. As a result, the year-on-year flow decreased by RMB 2.54 billion.

7 Cash flow from payables at the end of the first quarter increased by RMB 1.13 billion, while the increase was RMB 3.38 billion for the same period last year. As a result, the year-on-year flow decreased by RMB 2.25 billion.

The year-on-year increase in net cash outflow arising from investing activities was RMB 2.08 billion, representing a growth rate of 62.5%, mainly due to the payment for RMB 2.34 billion of land-transferring fees for signing of the grant contract of land use right of west Luojing area between the Company and Shanghai Municipal Bureau of Planning and Land & Resources.

The year-on-year increase in net cash inflow arising from financing activities was RMB 130 million, representing a growth rate of 4.9%; it was basically flat compared with that at the same period last year.

Compared with the beginning of 2014:

Tradable financial assets was RMB 150 million more than that at the beginning of the year, representing a growth rate of 532.6%, mainly attributable to the increase of RMB 150 million in the money fund investment made by the Finance Co.

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Interest receivable was RMB 250 million more than that at the beginning of the year, representing a growth rate of 33.5%, mainly attributable to sales of relevant assets of the stainless steel and special steel business units and installment interest receivable.

Intangible assets was RMB 2.3 billion more than that at the beginning of the year, representing a growth rate of 33.4%, mainly attributable to the payment for land-transferring fees of RMB 2.34 billion for signing of the grant contract of land use right of west Luojing area between the Company and Shanghai Municipal Bureau of Planning and Land & Resources.

Tax payable was RMB 560 million more than that at the beginning of the year, representing a growth rate of 31.5%, mainly attributable to the increase in sales revenue of the legal representatives of the Company in March, compared with that in December 2013, leading to the increase of RMB 200 million in corresponding output tax; in the meantime, due to fluctuation in customs clearance and other reasons, corresponding input tax decreased by RMB 400 million; as a result, the value added tax payable increased by RMB 630 million.

3.2 Progress and impacts of major events and analysis and description of solutions

Applicable Not applicable

3.3 Commitments and performance of the Company, shareholders and actual controller

Applicable Not applicable

1. Commitments related with the initial public offering (IPO)

Baosteel Group undertook the following two commitments as at the establishment of the Company:

(1) All related party transactions with the Company will be carried out in compliance with relevant laws, regulations and rules set by the authorities and will not damage the legitimate interest of the Company nor its minority shareholders.

(2) Baosteel Group will not directly participate in any business activity or directly own an interest in any business activity or entity that might pose competition to the Company's current operating business. However, Baosteel Group can maintain its existing shares in the Company, as well as manage and develop the existing business which may or may not be in competition with the Company. Should Baosteel Group (including its wholly-owned and holding subsidiaries or other associates) engage in any new business, investment or research that might be in competition with the principal products or services of the Company in the future, Baosteel Group has agreed to grant the Company pre-emptive rights to develop or acquire the said business.

These commitments will stay in force under two conditions: A. the Company is listed on the Hong Kong Stock Exchange and domestic stock exchange of China; and, B. Baosteel Group owns no less than 30% of the Company's issued shares.

In addition, on June 13, 2001, and September 6, 2002, Baosteel Group further pledged to uphold these two commitments after the Company's acquisition of the assets related to construction of its phase three project and all remaining assets thereof.

These commitments were published on China Securities News, Shanghai Securities News and Securities Times dated 21st June 2001 and 12th September 2002 and the official website of Shanghai Stock Exchange () as well.

2. Commitments related with re-financing

Commitments made in the Prospectus of additional public offering by Baosteel Group:

(1) The Company has the right to acquire, at any time it thinks appropriate, Baosteel Group's assets and businesses which may be in competition with the Company.

(2) The Company shall enjoy the priority of similar business opportunities acquired by Baosteel Group, who will not invest until the Company gives up the commercial opportunities.

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